At 1:33 PM 1/22/95, Michael Perelman wrote: >If consistency is the hobgoblin .... , then we must acknowledge the greatness >of A. Greenspan. One day, he must raise interest rates to fight inflation. > >The next day, he tells the Congress that the BLS is overstating inflation. As one of at least two aspiring central bankers on the list (hi Bob Pollin!), let me unravel the consistency here. Radically revising the CPI would be a fiscal tightening for one - a reduction of tax indexation is a tax increase and a real cut in social security benefits is a spending cut. A not insubstantial 1/2% of GDP or so I think. As for inflation, they care more about the direction than the level. Inflation seems poised to rise, and they don't want it to. The level it rises from is of less importance. The revision of the CPI is looking smelly. CPI czar Pat Jackman first told the press that the enviro-mandated reformulation of gasoline would not be treated as a quality improvement, but would be a price increase. As the release date approached, they changed their mind; Jackman said it was decided from higher up to change the calculation, and treat the gas reformulation as a quality increase. (Higher up can only mean Reich or Clinton; Rubin may have a voice too.) This knocked some 0.2 points off the last CPI release, greatly calming the bond market. This may seem dweebishly trivial, but some interference with the BLS's independence is going on. The BLS has already reweighted its measures of health care & housing inflation in ways that will shave a couple of hairs off the monthly rate. This too looks a little strange. Gingrich last week wrote a letter to the BLS saying that if it didn't redefine the CPI his way within 30 days, he'd defund the Bureau. This is an even more appalling intrusion on the BLS, worse than anything that ever happened during the Reagan years. Doug Henwood [[EMAIL PROTECTED]] Left Business Observer 250 W 85 St New York NY 10024-3217 USA 212-874-4020 voice 212-874-3137 fax
